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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
Amendment No. 2
to
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 22, 1997 (Date of Earliest
Event Reported: December 12, 1996)
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in the Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-2700 74-0608280
(Commission File Number) (I.R.S. Employer Identification No.)
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 757-2131
(Registrant's Telephone Number, Including Area Code)
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Item 7. Financial Statements and Exhibits.
Items 7(a) and 7(c), included in El Paso's Form 8-K/A dated January 21,
1997, are not affected by this Form 8-K/A.
(b) Pro forma financial information.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF EL PASO AND TENNECO ENERGY
The following Unaudited Pro Forma Combined Financial Statements of El
Paso and Tenneco Energy (the "Pro Forma Financial Statements") illustrate the
effect of (i) the Corporate Restructuring Transactions, the Cash and Debt
Realignment, the public offering of New Preferred Stock and the Distributions;
(ii) the Merger; and (iii) the Refinancing Transactions (as defined). The
Unaudited Pro Forma Consolidated Balance Sheet has been prepared as if such
transactions occurred on September 30, 1996; the Unaudited Pro Forma
Consolidated Statements of Income have been prepared as if such transactions
occurred as of January 1, 1995. Capitalized terms used herein shall have the
respective meanings set forth in the Merger Agreement or the Distribution
Agreement unless otherwise defined herein.
The Pro Forma Financial Statements reflect El Paso having acquired 100%
of the outstanding Tenneco common stock, $7.40 preferred stock and $4.50
preferred stock. Pursuant to the Merger Agreement, El Paso acquired an amount
of debt equal to $2.6 billion (subject to certain other adjustments) less the
New preferred stock Issuance proceeds, issued approximately $750 million
(subject to the effects of a collar on the average El Paso common stock market
price) of El Paso equity securities to holders of Tenneco common stock, $4.50
preferred stock and $7.40 preferred stock, assumed the $295 million of Tenneco
junior preferred stock issued in the New Preferred Stock issuance, and acquired
an estimated amount of $600 million in other liabilities of certain discontinued
businesses of Tenneco for a total purchase price of approximately $4 billion. El
Paso's acquisition of Tenneco will be accounted for under the purchase method.
These pro forma financial statements reflect the common stock issuance as
approved by the stockholders of the Company in a special meeting held on
December 9, 1996.
A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the Pro Forma Financial Statements are preliminary and have
been made solely for purposes of developing the pro forma combined financial
information. However, management believes that the pro forma adjustments and
the underlying assumptions reasonably present the significant effects of the
Merger and the Refinancing Transactions. As used herein, "Refinancing
Transactions" means certain transactions with respect to Tenneco Energy in
order to reduce the amount of El Paso Tennessee debt including (i) the
monetization of certain assets of Tenneco Energy for anticipated net proceeds of
approximately $500 million, and (ii) a public equity offering by El Paso of
approximately $150 million and the use of the net proceeds of $140 million for
the repayment of long-term debt acquired pursuant to the Merger. In addition,
El Paso will undertake a study to determine the fair value of Tenneco Energy's
assets and liabilities and will revise purchase accounting adjustments upon
completion of that study. Upon consummation of the Merger, the actual financial
position and results of operations of the combined entity will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including access to additional information, changes in value and
changes in operating results between the dates of the pro forma financial
information and the date on which the purchase accounting adjustments are
finalized. The Pro Forma Financial Statements are not necessarily indicative of
actual operating results or financial position had the transactions occurred as
of the dates indicated above, nor do they purport to indicate operating results
or financial position which may be attained in the future.
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The significant adjustments to the pro forma financial position reflect
(i) reductions to cash, receivables and payables and increases to debt for the
Corporate Restructuring Transactions and the Cash and Debt Realignment
Transactions, (ii) increases to property, plant and equipment and accrued
liabilities and decreases to regulatory assets for the purchase price
allocation, and (iii) decreases to property, plant and equipment and debt and
increases to equity for asset sales, debt restructuring and equity offerings in
connection with the Merger and the Refinancing Transactions.
The pro forma adjustments do not reflect any potential operating
efficiencies or cost savings which El Paso believes are achievable with respect
to the combined companies.
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
--------------------------------------- ------------------------------------------
TENNECO RESTRUCTURING, TENNECO EL PASO/
EL PASO ENERGY REALIGNMENT ENERGY MERGER REFINANCING TENNECO ENERGY
HISTORICAL HISTORICAL AND OFFERING AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- ------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and temporary
investments $ 52 $ 35 $ (2)(d) $ 87 $ $ $ 139
54 (g)
Receivables 317 1187 (82)(a) 839 1,156
(303)(b)
37 (c)
Other current assets 124 153 (10)(c) 143 267
------ ------ ------ ------ ------- ----- ------
Total current assets 493 1,375 (306) 1,069 1,562
------ ------ ------ ------ ------- ----- ------
Net property, plant and
equipment 1,991 2,972 (39)(c) 2,933 1,720 (k) (580)(n) 6,064
Other assets and deferred 290 1,101 (130)(b) 960 (590)(j) 80 (n) 740
charges (11)(c)
------ ------ ------ ------ ------ ----- ------
Total assets $2,774 $5,448 $ (486) $4,962 $1,130 $(500) $8,366
====== ====== ====== ====== ====== ===== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt $ 289 $ 836 $ (784)(f) $ 52 $ $ 330 (o) $ 671
Payables 386 475 (120)(a) 353 20 (h) 759
(2)(b)
Other current liabilities 308 553 (4)(c) 433 120 (j) 861
(116)(f)
------ ------ ------ ------ ----- ----- ------
Total current liabilities 983 1,864 (1026) 838 140 330 2,291
------ ------ ------ ------ ----- ----- ------
Long-term debt 665 1,603 1,120 (f) 2,428 (500)(n) 2,123
(295)(e) (140)(m)
(330)(o)
Other liabilities and deferred
credits 82 585 (15)(c) 568 151 (j) 801
(2)(d)
Deferred income taxes 296 437 (14)(b) 423 335 (l) 1,054
------ ------ ------ ------ ----- ----- ------
2,026 4,489 (232) 4,257 626 (640) 6,269
------ ------ ------ ------ ----- ----- ------
Minority interest 40 295 (k) 335
------ ------ ------ ------ ----- ----- ------
Preferred stock with mandatory
redemption provisions 113 113 (113)(i)
------ ------ ------ ------ ----- ----- ------
Stockholders' equity:
Preferred Stock 295 (e) 295 (295)(k)
Common Stock 113 56 (i) 9 (m) 178
Additional Paid In Capital 484 858 (i) 131 (m) 1,473
Accumulated Earnings 111 111
Tenneco Energy Combined Equity 846 38 (a) 297 (297)(k)
(417)(b)
(4)(c)
(220)(f)
54 (g)
------ ------ ------ ------ ----- ----- ------
Total stockholders' equity 708 846 (254) 592 322 140 1,762
------ ------ ------ ------ ----- ----- ------
Total liabilities and
stockholders' equity $2,774 $5,448 $ (486) $4,962 $1,130 $(500) $8,366
====== ====== ====== ====== ====== ===== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
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EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
RESTRUCTURING, REALIGNMENT AND OFFERING:
(a) To reflect the settlement of intercompany trade accounts receivable and
intercompany trade accounts payable with Tenneco Energy affiliates.
(b) To reflect the distribution to New Tenneco or sale of receivables
previously sold to Tenneco Credit Corporation, a Tenneco Energy affiliate
which has been renamed "El Paso Energy Credit Corporation."
(c) To reflect the transfer from Tenneco Energy to New Tenneco and affiliates
of certain assets and liabilities held at the corporate level.
(d) To reflect the transfer to New Tenneco of insurance liabilities and the
related portfolio of short-term cash investments and other assets
previously held by Eastern Insurance Company Limited.
(e) To reflect the issuance of $300 million of New Preferred Stock, with an
assumed 8 1/4% dividend yield, for net proceeds of $295 million, and the
use of the net proceeds for the repayment of Tenneco Energy Consolidated
Debt.
(f) To reflect the restructuring and realignment of the Old Tenneco debt
pursuant to the Debt Realignment, the Distributions and the applicable
provisions of the Merger Agreement, and the assumed payment of accrued
interest on the Tenneco Energy Consolidated Debt defeased, redeemed,
tendered or exchanged as part of the Debt Realignment. The amount of
"Tenneco Energy as Adjusted" debt immediately prior to the Merger
consists primarily of borrowings under the Tenneco Credit Facility and is
calculated from the provisions of the Merger Agreement as follows (in
millions):
Base Debt Amount per Merger agreement ...................... $2,611
Less: New Preferred Stock issuance proceeds ................ (300)
------
2,311
Plus: Cash settlement payments ............................. 439
Less: Estimated collections subject to refund .............. (270)
------
$2,480
"Tenneco Energy as Adjusted" debt........................... ======
(g) To reflect the contribution to Tenneco Energy of cash pursuant to the
Cash Realignment provisions of the Merger Agreement and Distribution
Agreement.
MERGER ADJUSTMENTS:
(h) To reflect the liability for the estimated legal, investment banking and
stock issuance costs of $20 million to be incurred by El Paso in
connection with the Merger.
(i) To reflect the issuance of approximately 18.793 million shares of El Paso
common stock valued at $914 million based on an assumed price of $48.625
per share. The equity consideration was issued in exchange for the $113
million of $7.40 preferred stock and $4.50 preferred stock at an assumed
redemption amount equal to $138 million with the remainder exchanged for
Old Tenneco common stock.
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(j) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting to record assets acquired and
liabilities assumed at estimated fair value for (i) reduction of
certain other assets, deferred charges and regulatory assets, (ii)
revision of benefit plan assumptions relating to the retiree medical
plan obligation, other employee benefit costs and environmental costs,
and (iii) the accrual of an obligation to New Tenneco which is
expected to be paid after completion of the transaction as a result of
the utilization of certain tax benefits generated by the Debt
Realignment. The following adjustments reflect El Paso management's
intended business strategies which may differ from the business
strategies employed by Tenneco Energy management prior to the Merger
(in millions):
<TABLE>
<S> <C>
Other assets and deferred charges . . . . . . . . . . . . . $ 590
Other liabilities and deferred credits . . . . . . . . . . . 151
Other current liabilities . . . . . . . . . . . . . . . . . 120
-----
$ 861
=====
</TABLE>
(k) The following adjustments are made to adjust the historical values of
certain assets and liabilities to their estimated fair values as
follows (in millions):
<TABLE>
<S> <C>
Increased property, plant and equipment . . . . . . . . . . . $1,720
Reduce other assets and deferred charges . . . . . . . . . . . (590)
Increase current liabilities . . . . . . . . . . . . . . . . . (140)
Increase other liabilities and deferred credits . . . . . . . (151)
Increase deferred income taxes . . . . . . . . . . . . . . . . (335)
Eliminate Tenneco Energy stockholders' equity:
Tenneco Energy preferred stock . . . . . . . . . . . . 113
Tenneco Energy equity . . . . . . . . . . . . . . . . 297
------
Issuance of El Paso common stock . . . . . . . . . . . . . . . $ 914
======
</TABLE>
The allocation above reflects El Paso's internal evaluation of the
excess purchase price and is subject to the completion of an
independent appraisal of the fair value of the property. It is not
expected that any excess purchase price allocated to property, plant
and equipment will be allowed for regulatory purposes or recovered
through rates. Should the independent appraisal not support such
allocation to property, plant and equipment, the excess of total
purchase price over the fair value of the net assets acquired will be
reflected as goodwill.
(l) To reflect the increase in deferred income taxes of $335 million which
have been provided for temporary differences after the allocation of
the pro forma purchase price and acquisition adjustments. The
following pro forma adjustments were required for estimated book and
tax basis differences resulting from the allocation of the pro forma
purchase price, at an assumed tax rate of 39% (in millions):
<TABLE>
<S> <C>
Property, plant and equipment . . . . . . . . . . . $ 671
Other assets . . . . . . . . . . . . . . . . . . . . (230)
Other liabilities . . . . . . . . . . . . . . . . . (106)
-----
$ 335
=====
</TABLE>
REFINANCING TRANSACTIONS:
(m) To reflect the assumed issuance of $150 million El Paso common stock,
for net proceeds of $140 million, and the use of the net proceeds for
the repayment of long-term debt acquired pursuant to the Merger.
(n) To reflect the assumed monetization of $500 million of assets through
sales or project financings, at book value, and to reflect El Paso's
remaining $80 million investment in certain Australian projects using
the equity method. These proceeds are used to pay down long-term debt
acquired pursuant to the Merger.
(o) To reflect the replacement of the remaining balance under the Tenneco
Credit Facility with short-term and long-term financing at interest
rates of 6% and 8%, respectively.
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Tenneco Energy
Pre-Merger Pro Forma Pro Forma Merger
---------------------------------- ------------------------------------
Restructuring, El Paso/
Tenneco Realignment Tenneco Tenneco
El Paso Energy and Energy Merger Refinancing Energy
Historical Historical Offering as Adjusted Adjustments Transactions Combined
---------- ---------- ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 1,938 $ 1,997 $ $ 1,997 $ $ (36)(j) $ 3,899
Operating costs and expenses ...... 1,744 1,865 (51)(a) 1,814 32(e) (31)(j) 3,565
6(f)
Employee separation and asset
impairment charge ............. 99 99
-------- ------- ------ -------- -------- -------- --------
Operating income ............. 95 132 51 183 (38) (5) 235
Other (income) expense, net ....... (1) (132) 8(a) (124) (125)
Interest expense .................. 73 101 55(c) 156 (38)(i) 183
(5)(k)
(3)(j)
-------- ------- ------ -------- -------- -------- --------
Income before income taxes and
minority interest .............. 23 163 (12) 151 (38) 41 177
Provision for income taxes
(benefit)(1) ................... 9 36 (2)(d) 34 (15)(g) (1)(j) 45
18 (l)
-------- ------- ------ -------- -------- -------- --------
Income before minority interest ... 14 127 (10) 117 (23) 24 132
Minority interest ................. 19 (h) 19
-------- ------- ------ -------- -------- -------- --------
Income before preferred
stock dividends................. 14 127 (10) 117 (42) 24 113
Preferred stock dividends ......... 7 19(b) 26 (19)(h)
(7)(h)
-------- ------- ------ -------- -------- -------- --------
Earnings available to common
stock ......................... $ 14 $ 120 $ (29) $ 91 $ (16) $ 24 $ 113
======== ======= ===== ======== ======== ======== ========
Earnings per average share of
common stock (2) .............. $ .40 $ 1.99
======== ========
Number of shares used in
computation of earnings per
common shares (in thousands) .. 34,994 18,793 3,085 56,872
======== ======== ======== ========
</TABLE>
- -------------------
(1) The provision for income taxes for Tenneco Energy reflects the
realization of unrecognized deferred tax assets; therefore, the
overall effective tax rate is significantly lower than the assumed
statutory rate of 39%. If the statutory rate had been used, the
combined provision for income taxes would have been $69 million and
the pro forma combined amounts for earnings available to common stock
and earnings available to common stock and earnings per average share
of common stock would have been $89 million and $1.56, respectively.
(2) Per share data is calculated using the income applicable to common
shares divided by the pro forma shares outstanding. The pro forma
weighted average common shares outstanding includes the following
assumptions: (i) the issuance of 18.793 million shares of El Paso
common stock to holders of Tenneco common stock, $7.40 preferred stock
and $4.50 preferred stock under the terms of the Merger, and (ii) the
assumed issuance of 3.085 million shares of El Paso common stock at
$48.625 per share as part of the Refinancing Transactions, the
proceeds of which will be used to pay down long-term debt. Earnings
per average share of common stock excluding the employee separation
and asset impairment special charge ($60 million after tax) would be
$2.11 and $3.05 per common share for the El Paso Historical and El
Paso/Tenneco Energy Combined presentations, respectively.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Tenneco Energy
Pre-Merger Pro Forma Pro Forma Merger
------------------------------------- ---------------------------------------
Restructuring, El Paso/
Tenneco Realignment Tenneco Tenneco
El Paso Energy and Energy Merger Refinancing Energy
Historical Historical Offering as Adjusted Adjustments Transactions Combined
---------- ---------- ------------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 1,038 $ 1,921 $ $ 1,921 $ $ (47)(j) $ 2,912
Operating costs and expenses ...... 826 1,843 (93)(a) 1,750 43 (e) (41)(j) 2,586
8 (f)
-------- -------- -------- -------- -------- -------- --------
Operating income .............. 212 78 93 171 (51) (6) 326
Other (income) expense, net ....... (7) (190) 84(a) (106) (113)
Interest expense .................. 86 122 92(c) 214 (51)(i) 240
(6)(k)
(3)(j)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes
and minority interest ........... 133 146 (83) 63 (51) 54 199
Provision for income taxes
(benefit)(1) .................... 48 (11) (33)(d) (44) (20)(g) 24(l) 7
(1)(j)
-------- -------- -------- -------- -------- -------- --------
Income before minority interest ... 85 157 (50) 107 (31) 31 192
Minority interest ................. 25 (h) 25
-------- -------- -------- -------- -------- -------- --------
Income before preferred
stock dividends.................. 85 157 (50) 107 (56) 31 167
Preferred stock dividends ......... 12 25(b) 37 (25)(h)
(12)(h)
-------- -------- -------- -------- -------- -------- --------
Earnings available to common
stock ........................... $ 85 $ 145 $ (75) $ 70 $ (19) $ 31 $ 167
======== ======== ======== ======== ======== ======== ========
Earnings per average share
of common stock(2) .............. $ 2.47 $ 2.96
======== ========
Number of shares used in
computation of earnings per
common share (in thousands) ..... 34,495 18,793 3,085 56,373
======== ======== ======== ========
</TABLE>
- -------------------
(1) The provision for income taxes for Tenneco Energy reflects the
realization of unrecognized deferred tax assets; therefore, the
overall effective tax rate is significantly lower than the assumed
statutory rate of 39%. If this statutory rate had been used, the
combined provision for income taxes would have been $78 million and
the pro forma combined amounts for earnings available to common stock
and earnings per average share of common stock would have been $96
million and $1.70 respectively.
(2) Per share data is calculated using the income applicable to common
shares divided by the pro forma shares outstanding. The pro forma
weighted average common shares outstanding includes the following
assumptions: (i) the issuance of 18.793 million shares of El Paso
common stock to holders of Tenneco common stock, $7.40 preferred
stock and $4.50 preferred stock under the terms of the Merger, and
(ii) the assumed issuance of 3.085 million shares of El Paso common
stock at $48.625 per share as part of the Refinancing Transactions,
the proceeds of which will be used to pay down long-term debt.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
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EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
RESTRUCTURING, REALIGNMENT AND OFFERING:
(a) To reflect the earnings impact of the distribution to New Tenneco or
sale of receivables previously sold to Tenneco Credit Corporation, a
Tenneco Energy affiliate which has been renamed "El Paso Energy Credit
Corporation."
(b) To reflect preferred stock dividends on the New Preferred Stock issued
at an assumed dividend yield of 8 1/4%.
(c) To reflect interest expense on additional debt issued under the Tenneco
Credit Facility. For purposes of the pro forma calculations, an assumed
interest rate of 8% has been used.
(d) To reflect the income tax expense effects of pro forma adjustments.
MERGER ADJUSTMENTS:
(e) To reflect depreciation expense related to the increase in fair value of
property, plant and equipment, depreciated over a 40 year period which
approximates the FERC approved depreciation rate for the regulated
property, plant and equipment of Tenneco Energy prospectively.
(f) To reflect the assumed pro forma postretirement cost for Tenneco Energy
employees.
(g) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
(h) To reflect the New Preferred Stock dividends as minority interest and
the elimination of dividends on the $7.40 preferred stock and $4.50
preferred stock.
REFINANCING TRANSACTIONS:
(i) To reflect an interest expense reduction relating to debt repaid from
the net proceeds from the $150 million equity offering and proceeds from
the monetization of $500 million of asset sales and project financings at
book value.
(j) To remove the historical operating results of Tenneco Energy's
exploration and production business which is assumed to be disposed at
book value.
(k) To reflect the interest expense reduction relating to the replacement of
the remaining balance under the Tenneco Credit Facility with short-term
and long-term financing at interest rates of 6% and 8%, respectively. A
1/8% change in interest rates would have the impact of increasing total
pro forma interest expense by approximately $1.7 million and $2.2 million
for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.
(l) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO NATURAL GAS COMPANY
By /s/ H. BRENT AUSTIN
-----------------------------
H. Brent Austin
Executive Vice President
and Chief Financial Officer
Date: January 22, 1997
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